In 1949 when people republic of china came into being it was torn by civil war and ruled by communist’s.The 1950 saw famine in china with more than a million people dead.In 1960 cultural revloution destoryed the university system and educated chineese citizens were forced to work in the countryside.But then also china grew and not only just grew but became the greatest economic success story ever heard.How??
Modern china, world’s most populous county is the worlds biggest exporter and importer,has an excellent growing economy but it is hard to believe that this picture of china is built in just few years.
The growth of china began in the period of Deng Xiaoping and his allies who came into power after the death of Mao who if had been in power for a longer time might have made china one of the poorest nations in the world.
Deng used the power of market and changed the luck of china in just 5 years.Deng introduced the world of truth to chinese agriculture.He revolutionised the power of agriculture by providing the incentives in right amount and in right direction. Incentives created the zeal in farmers to work hard as more they grow more will be the benefits. The reforms of liberalisation and incentives doubled the average income of farmers in just 5 years.
Those who had good ideas,good luck and who worked hard prospered.Bad ideas were quickly abondened.
But only agriculture revolution cannot prosper such a big economy but right and efficient investments can. If you want to be richer tomorrow than you are today,you should invest money rather than the spending it on goods and services to be enjoyed immediately.And if the investments are good you will be rich tomorrow.While a capatilist country have to rely on foreign investments for more capital socialist government like china has no problem of capital.In china all of the saving was done by government or by state owned corporations.In short money was taken out of the pockets of individulas and invested on their behalf and almost a third of national income was saved.
But incentives and savings alone are not enough. The enviornment created by free markets produce good outcomes not just because it provides incentives but becoz it generates information about costs and benefits of all kinds of goods and services by means of competition. So china shifted gradually to market system to get any value out of the vast sums of investment capital available.and finally the results were that 15 years after deng came into power investment has quadrupled.
If someone had been to china in 90’s then he can tell what exactly china was and what it has become now.
Deng fixed the production rate of state owned corporations and allowed them to do whatever they want with the extra production which acted as an incentive.As the production plans were fixed, a certain stability was guaranteed which led people to.keep working in their jobs and lastly the market operated at margin which leads to efficiency in economy.
So chinese economic miracle was not really about privitisation and liberalisation but was about the process which forced the companies to compete in a relatively free market, driving down scarcity power and bringing in the information and incentives of the world and the truth.
But if china can then why not india??